Food for Thought

• DOI: http://doi.org/10.1002/bl.30095
• Date: 01 January 2018
• Published date: 01 January 2018

2 BOARD LEADERSHIP

the context of the Canadian Business

Corporations Act (CBCA)2: “A consid-

eration of any corporate law issue …

ultimately leads to a deliberation of

how to define what the best interests

of a corporation are.”

The CBCA demands that “every

director and officer of a corporation, in

exercising their powers and discharg-

ing their duties shall act honestly and

in good faith, with a view to the best

interests of the corporation.”2 Yet

courts and academics disagree as to

the appropriate definition of “acting in

the best interests of the corporation.”3

In the absence of this definition,

many claims arise. Perhaps “the best

interests of the corporation” can be

equated with the best interests of

shareholders, or employees, or stake-

holders, or the local community, or the

people represented by the incorporat-

ing body? Or maybe all of them? And

it doesn’t help our search for clarity

to know that each of these terms is

open to a large number of different

interpretations.

In the United Kingdom, the Compa-

nies Act 2006 requires that directors

consider the impact of their actions on

a wide range of stakeholders. The Act

requires a director to “promote the

success of the company for the benefit

of its members as a whole,” but sets

out the following six factors a director

must consider in fulfilling the duty to

promote success:4

1. The likely consequences of any

decision in the long term.

2. The interests of the company’s

employees.

3. The need to foster the

company’s business relationships

with suppliers, customers, and

others.

4. The impact of the company’s

operations on the community

and the environment.

5. The desirability of the company

maintaining a reputation for high

standards of business conduct.

6. The need to act fairly as between

members of a company.

To put the position briefly, board

members can be forgiven for being

confused about whose interests should

come first when it comes to defining

success.

On the second basic question of

“How can governance impact success

or failure?” we are also falling short

of our noble aim of “governance that

enables organizations to succeed” as

those associated with FIFA, Volkswa-

gen, and charities such as Kids Wish

Network, among many others, can

attest.5 Writing about Volkswagen in

the October 2015 issue of Boardroom

Insider, Ralph Ward says:

Not only are the supervisory board

chair and CEO positions separate,

the chief executive … cannot even

sit on the supervisory board. When

it comes to governance, Germany

sits near the top in global rankings

on the rule of law in business,

solid regulatory structures, low

corruption, and audit integrity.

… All good—and yet none of

this created internal controls that

could stop or detect a massive,

international emissions tampering

scandal. Volkswagen’s supervisory

board has launched an investigation

to learn what happened and who is

responsible—not only didn’t their

internal controls spot the mischief,

they still can’t determine how

extensive the tampering is, who was

involved, and in what countries.

He concludes: “… Volkswagen is a

company in a governance zone that

should have seen everything done

right. If their controls failed them so

disastrously, what could your compa-

ny’s internal controls be missing right

now?”6

When things go wrong—as we

have seen time after time from Enron

onwards—given that no one can be

expected to know everything about

everything, we still don’t know what

boards should and should not know

about what, nor what CEOs should

and should not know about what. We

still don’t know whose head or heads

should roll.

Is Perfect Governance

Even Possible?

T. S. Eliot’s suggestion that ulti-

mately we are all trying to escape

the darkness within and without by

“dreaming of systems so perfect that

no one will need to be good”7 has

much merit. The very best of boards

using the very best of governance sys-

tems and the very best of CEOs using

the very best of management systems

have to give others some freedom

to get the job done. This inevitably

involves some element of trust and,

equally inevitably, sometimes there will

For all the increased

research and focus

on governance since

the very first report on

corporate governance,

we still have no

agreement on the

answers to the most

basic of questions.

Being Real

(continued from front page)

FOOD FOR THOUGHT

You gain strength, courage,

and condence by every

experience in which you

really stop to look fear in

the face. You must do the

thing you think you cannot

do.

Eleanor Roosevelt

First Lady of the United States

(1933–1945)